Today’s announced partnership between the West Coast innovators Square and Starbucks represents a significant milestone in the advancement of mobile payment and digital wallets. Here’s why:

  • New entrant scale. The Pay With Square digital wallet has suddenly catapulted from a respectable new entrant in mobile payments, driving adoption within the long-tail of retail, to soon being present in every Starbucks, and in NYC, that’s just about every other block. Starbucks, the leader of in-store mobile payments, says that 1 million people per week use its mobile payment app to pay in-store. Its existing mobile payment customers will now be Square’s customers, giving Square an immediate boost in the number of locations and consumers it reaches within the market.
  • Accelerated adoption. As with the Starbucks app, consumers have only to download the Pay With Square wallet and load their funding source in order to use it. But unlike the existing Starbucks app, the Square digital wallet works with other merchants. According to Square, merchant acceptance is very quick and no-to-low cost, and Square promotes its participating merchants to users of the wallet. I think this set of factors will motivate other merchants — both large and small — to use this as an opportunity to trial mobile payments in their stores. Today’s announcement is unclear about whether the initial implementation will have Starbucks embedded in the Pay With Square wallet, but at a minimum, this deal gives Square broader visibility and awareness and the opportunity to earn the confidence of new customers with its digital wallet, which will drive broader adoption overall.
  • Compelling experience. In a recent interview, a Square spokesperson said they “pride themselves on beautiful, easy to use products with elegant design and a great experience.” Hmm . . . this sounds familiar. The Apple of payments? Perhaps . . . until Apple flexes its iTunes digital wallets outside the store . . . (stay tuned). Those of us who frequent Starbucks know that their employees work hard to get us through the line quickly, even with each order uniquely customized. Many baristas even know the preferred beverages of their most loyal customers. Although not part of the initial implementation, this type of customer recognition, embedded loyalty, and faster checkout is what Square enables for its existing merchants. If the Square/Starbucks duo can successfully deliver a more convenient, contextually relevant, and compelling experience, then consumers will look forward to using the Pay With Square digital wallet at Starbucks and with their other favorite merchants. It also will set a new a standard for the type of compelling experience that consumers will know is possible and will come to expect when using a mobile digital wallet.

As discussed in my recent report, “Why The Digital Wallet Wars Matter,” we will continue to see new entrants into the market. This week it was GoPago, a mobile payment system and partner with heavyweight Chase Paymentech. I think the Square and Starbucks announcement is “game-on” to recent announcements from Google Wallet, LevelUp, and PayPal. What do you think? Does this position Square to be the leader in the latest battle of the digital wallet wars?